Inflation Continues To Surprise On The Upside

USD/CNH has remained within recent ranges despite talk of lower tariffs and another solid data beat. Still, CNH is outperforming its Asian peers and the likes of JPY. Higher US yields and yen weakness weighed on regional FX sentiment elsewhere. On the data front, South Korea, Philippines and Thailand inflation prints were all stronger than expected.

• CNH: USD/CNH dipped towards 6.6800 following reports of a video call between China's Vice Premier Liu and US Treasury Secretary Yellen. We didn't see much follow through though, the US Treasury account of the meeting didn't mention tariffs either. China equities are down on the day as well, despite a nice Caixin services PMI beat (54.5 versus 49.6). Rising domestic covid cases is likely weighing at the margin. USD/CNH has spent much of the afternoon session just above 6.6900.
• KRW: USD/KRW tried to break lower sub 1295 on a couple of occasions but failed. We are now back close to 1300, around +0.25% above yesterday's closing levels. Won weakness has ignored the outperformance of local equities, up 1.6% for the Kospi. The June inflation data was +6% YoY, which was above market expectations, and could trigger a 50bps hike at the next BoK meeting.
• INR: USD/INR is drifting higher in early trade, back above 79.05, versus yesterday's close of 78.95. Higher oil is weighing, although onshore equities are up close to 1%. Earlier, the services PMI printed at 59.2 for June, versus 58.9 previously.
• PHP: USD/PHP tried to drift lower in early trade but is now back to 55.10, slightly above yesterday's closing levels. Inflation printed stronger than expected for June, 6.1% versus 6.0% expected. BSP Governor Medalla said we could see a 50bps hike in August if MoM inflation is strong enough. The policy rate may also be at 3.5% by year's end (from the current 2.5%).
• SGD: The SGD NEER has recovered some ground, as per the Goldman Sachs estimate. USD/SGD is slightly lower, tracking back sub 1.3960. Retail sales were strong for May, printing at 17.8% YoY, versus 13.4% expected.
• THB: Thailand inflation printed stronger than expected. YoY headline to 7.66% from 7.10% previously, and 7.45% expected. Core inflation pushed up, but from a low base to 2.50%. The next policy meeting is August 10th, with pressure growing for BoT to act. USD/THB remains close to recent highs but is finding some selling interest above 35.70 (last was 35.685).